1/25/23 best FHA multifamily permanent loan rate for borrowers is about 4.75% + MIP.
385 Southeast Rd, New Hartford, Connecticut 06057, United States
Hello Multifamily Borrowers
Welcome, Borrowers
For 4 decades, borrowers have been shut out of the pricing process for loans insured by HUD, RHS, and FNMA.
Your interest rate is determined by the price of the bonds your lender will be selling.
Due to the nature of the REMIC execution for those bonds, pricing is much more complex than adding a spread to a benchmark.
Background
The Early Years
Back in 1982 when FHA was just beginning to insure multifamily loans, finding a buyer for those loans wasn't an easy process. Most lenders were banks, and loans were made to sit on the balance sheet. It took time to find larger investors such as life insurance companies, pension funds, and money managers who were willing to invest in these long-duration products. Most loans could not be prepaid for 10 years. Loans were rate-locked over a period of days and after much negotiation and renegotiation. Borrowers had little power over their interest rate and were at the mercy of the Wall Street gods.
By 1987 the "plain vanilla" prepayment structure changed as the product adapted to more demand from the investor marketplace. HUD published mortgagee letter 87-9 to establish looser prepayment restrictions on the multifamily loans they insured. By 1998, the most standard prepayment restriction was for only 5 years of lockout, a 5% penalty in year 6, declining by 1% every year thereafter. During these 11 years, volume in the HUD multifamily marketplace expanded and many new entrants were added. Some of those new firms, such as P/R Mortgage and Investment Corp. (now called Merchants Bank of Indiana, ticker MBIN) were founded in 1990 and a bit after. Continental Securities of New York was formed in 1981 and reformed in 2001.
It wasn't until early 2001 that the first REMIC securitization was sold by DLJ. Today, REMIC securitization offers uncomparable execution, meaning the lowest rates available. And because bond execution was so successful, many multifamily lenders jumped into the FHA-insured Agency lending space. Agency loans, bundled as securities by Wall Street broker/dealers, became the financing of last resort in troubled times. Without a robust HUD platform to refinance deals in 2008, we don't know where we would be today. HUD lenders stepped up to the plate and HUD did a fantastic job during those tumultuous times.
Learn More
HUD multifamily rates began their descent after the advent of REMIC securitization in 2001. Wall Street dealers bundled loans into sophisticated bonds and sold those bonds to banks, money managers, and insurance companies across the globe.